Lawsky Cites Ocwen’s Growth in Halting Servicing Deal with Wells

New York regulators halted Ocwen Financial’s deal to buy a mortgage servicing portfolio from Wells Fargo out of concern that the nonbank is growing too fast.

Ocwen said Thursday it had agreed “to put an indefinite hold” on its $2.7 billion purchase of the servicing rights from Wells at the request of Benjamin Lawsky, the superintendent of New York’s Department of Financial Services. Based in Atlanta, Ocwen has a New York mortgage banking charter.

“Ocwen will continue to work closely with [Lawsky’s department] to resolve its concerns about Ocwen’s servicing portfolio growth,” the company said in a press release. Bloomberg News had reported earlier Thursday that the deal was on hold.

Concerns were raised about Ocwen’s ability to service the 184,000 loans, totaling $39 billion, that it planned to take over from Wells after an independent monitor reviewed the servicer’s operations, a person familiar with the situation says. The monitor was installed last year as part of a consent order with Lawsky following Ocwen’s acquisition of Litton Loan Servicing from Goldman Sachs in 2011.

The monitor has been assessing whether Ocwen has enough staff and capacity to handle delinquent loans. An examination by the New York regulator in 2012 found gaps in Ocwen’s servicing records and areas of noncompliance in offering borrowers alternatives to foreclosure.

Wells Fargo did not respond to a request for comment Thursday.

In December, Ocwen agreed to pay $2 billion to state and federal regulators, including the Consumer Financial Protection Bureau, to settle allegations it mishandled foreclosures and mortgages for thousands of borrowers.

Lawsky has emerged as one of the country's most active and assertive regulators, and gained national prominence by going after large banks on money laundering and consumer protection issues and breaking ranks with federal counterparts.

His intervention in the servicing deal with Wells suggests that he may require Ocwen to provide further evidence it is following beefed-up servicing requirements or additional measures for the sale to go through.

Regulators have largely supported an expanded role for nonbank servicers given banks' servicing lapses in recent years.

But concern has mounted among investors and analysts that the three major nonbank servicers—Ocwen, Nationstar and Walter Investment—are becoming too big to handle more acquisitions.

Ocwen has catapulted itself into the ranks of the top 10 mortgage servicers and is now ranked as the seventh-largest mortgage servicer, behind only the top four banks, Nationstar and U.S. Bancorp.

Nonbank servicers have been aggressive in acquiring servicing rights as large banks deliberately reduce their exposure due to changing capital rules, increased regulatory scrutiny and the desire to shed noncore customers.

Correction: An earlier version of this story mischaracterized the kind of charter Ocwen has in New York. It is a mortgage banking charter, not a commercial banking charter.